Motilal’s schemes have smaller AUMs and their share of direct plans is growing faster so I would not be worried. However, they are also distributors of these MF products and they will take a small hit there. Wealth management products also push clients into MF products and they would lose commissions there or they will be trailing in nature and accounting treatment will be different. However, this would also increase return potential and attract more flows in the long term. Additionally, distributors will see consolidation and those who are advisers rather than just salesman will be real winners in the long term.

@sumi00 Your statement “However, this would also increase return potential and attract more flows in the long term”

Great long term thinking. This should also teach investors to move away from PMS and other such hedge fund like set ups, which significantly erode investor wealth with their 2 & 20 commissions. In today’s Business standard, it is mentioned that the new rules will affect the smaller AMCs more than the larger ones, while the newer ones will take 10 years to break even as against the 7 years as at present. This should keep the competition at bay, and discourage newer competitors from setting up shop. So in effect, competition has been discouraged, and the top few funds will corner up the market. The big boy wins. Their PMS returns are untouched, while life is made hell for new mutual fund competitors. 3 cheers to Motilal Oswal.

Unless markets bounce back, I imagine next quarter results too will probably not be too great. While AMC and broking business stands on strong footing, the fund based segment is again likely to show some red because they have to now show MTM gains/losses each quarter. HFC remains a question mark and while they have provisioned a huge sum of money but there is no evidence that asset quality will improve. However, they seemed to have really slowed down the disbursement until it all comes together which is great. Finally IB business also seems to have slowed down.

I have been tracking this company for 3 years for an investment opportunity but didnt get one because of expensive valuations at peak profit. Also, the sudden surge of flows into equity MF’s and discretionary investment schemes post demoni has also made me cautious. Overall, I feel it is a good business and the steps taken by management will certainly reduce the cyclicality of the business. Despite all the talk of low financialisation and low penetration of equity as a percentage of savings, I would ideally like to wait for the time when there is a bit more panic on dalal street and people are exiting their PMS investments and stopping SIP’s as opposed to today where everybody seems quite hung ho and a lot of money seems to be flowing in despite corrections. Such an opportunity presented itself in 2013 but we havent seen it since. Such a situation will provide an amazing entry point to buy in with good conviction! It might come, it might not. Until then, there is a large stock universe with steady compounders available! Mistakes of omission tend to be less painful than mistakes of commission!

In the meanwhile, I am more comfortable with HDFC AMC which is significantly “smoother” through cycles as evidenced by growth in profits even in 2013 and 2014. Obviously, it also means having to pay up.

The AMC business doesnt require any money to grow. So a company like HDFC asset management though having great ROEs has to return the capital through dividends after paying DDT. However Motilal Oswal which is the premier equity AMC in the country can redeploy the funds thrown up internally into the Housing Finance business. Since the stock market is now looking up, the market expects the results to improve in the next quarter, also considering that most of the losses in the housing finance business have been provided for.

Saurabh Mukherjea on Motilal Oswal Financial servicesAs a franchise. what would you bet on or as a stock which would you bet on? Would you bet on HDFC AMC, Motilal Oswal or Reliance?
"As a stock, I would say now that the Aspire Housing Finance thing has been sucked out of Motilal stock price, Motilal Oswal as a well run long-term play on savings in India does make sense. I wish the Aspire Housing Financing had never happened but it is what it is. In capital allocation decisions, we are allowed to be human but their asset management business, their broking, their wealth management business have got strong legs to benefit from the financialisation of the Indian economy.Why not IIFL Holding or HDFC AMC or…?

So let us take it one by one. In case of IIFL Holding, they have got two NBFCs. One above and one below. My views on NBFCs are relatively well known now. In HDFC AMC’s case, almost all largecap equity MFs face a big challenge. It is a very difficult for the largecap equity MFs to generate meaningful outperformance and that constraints there the long-term growth."

In that recent interview, Raamdeo Agarwal has stated that the scope of opportunity in Asset management business is something like 100 lakh crores, and MOFS even growing at 25% cagr will have the capacity to service only 2% of the market in 10 years. The scale of opportunity is mind boggling considering that a tsunami of retail investors money is waiting to come to the share market. And Raamdeo Agarwal says that the scale of opportunity is even bigger in Housing Finance. This was the reason for their Aspire gambit. Not able to compete with the moat enjoyed by the top 5 in housing finance who have captured 85% of the market, they are going after the low income groups, where the NPA is higher, and hence the underwriting requires to be of the top order, similar to that of Gruh. They need to post people from Gruh, instead of DHFL, which itself is in shambles, having to reinvent their business model itself again. Management is honest and competent. Company is modelled more like Berkshire Hathaway and Warren Buffett is the guru of Raamdeo Agarwal.
Disclosure: Invested

Company is modelled more like Berkshire Hathaway and Warren Buffett is the guru of Raamdeo Agarwal.

Is MOSL really comparable in any way to BH? Are these platitudes necessary? I cringed when Anand Piramal was compared to WB few months back. Does WB really stand for helter-skelter lending with questionable underwriting?

Even Warren Buffett had a horrific learning experience in the textile business. Even Warren Buffett replaced the CEO of Dexter and the CEO of another company dealing in fractional ownership of jets recently. Now Raamdeo has replaced the CEO of Aspire. Mohnish Pabrai recently had opined that MOFS could be a compounding machine. Startups like AU small finance bank etc., were discovered, financed and later partially divested in IPO by Raamdeo Agarwal. Even last quarter they were doing it with some real estate firms and several are in the pipeline. The interviews, the past performance record etc., of Raamdeo Agarwal set him up as the only Indian candidate for the post of Warren Buffett of India. Tell me of anyone else you know.
Motilal Oswal PE fund to invest Rs 200 crore in Happy ForgingsThe Economic Times – 16 Oct 18

Business doesn’t move in a straight line. Motilal Oswal inherent strength is their wealth and asset management business which also at one point in time was struggling but eventually picked up due to CAN-DO attitude of management.

In Aspire too the organization has leant early in the cycle. I see this again on growth path in FY20.